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A direct, catalytic conversion of benzene to phenol would have wide-reaching economic impacts. Fe zeolites exhibit a remarkable combination of high activity and selectivity in this conversion, leading to their past implementation at the pilot plant level. There were, however, issues related to catalyst deactivation for this process. Mechanistic insight could resolve these issues, and also provide a blueprint for achieving high performance in selective oxidation catalysis. Recently, we demonstrated that the active site of selective hydrocarbon oxidation in Fe zeolites, named α-O, is an unusually reactive Fe(IV)=O species. Here, we apply advanced spectroscopic techniques to determine that the reaction of this Fe(IV)=O intermediate with benzene in fact regenerates the reduced Fe(II) active site, enabling catalytic turnover. At the same time, a small fraction of Fe(III)-phenolate poisoned active sites form, defining a mechanism for catalyst deactivation. Density-functional theory calculations provide further insight into the experimentally defined mechanism. The extreme reactivity of α-O significantly tunes down (eliminates) the rate-limiting barrier for aromatic hydroxylation, leading to a diffusion-limited reaction coordinate. This favors hydroxylation of the rapidly diffusing benzene substrate over the slowly diffusing (but more reactive) oxygenated product, thereby enhancing selectivity. This defines a mechanism to simultaneously attain high activity (conversion) and selectivity, enabling the efficient oxidative upgrading of inert hydrocarbon substrates.